Tencent Has No Dream

Tencent senior management board from left to the right: Dowson Tong(Head of Social Network Group)/ James(Chief of Staff)/ Yuxin Ren (COO, Head of Interactive Entertainment Group, Head of Mobile Internet Group, Head of Online Media Group) Pony Ma (Founder and CEO)/ Martin Lau (President)/ Allen Zhang (Head of Wechat Group)

Luan Pan

Tencent is losing its edge in product development and innovation and has become an investment company.

The nearly 20-year-old company is becoming utilitarian and short-sighted. Its strength is no longer building product, but financial management.

Eight years after the 3Q War (360 VS QQ), Tencent put its bayonets and guns away. With its huge user base and enormous capital as its core driving force, Tencent went on a path of building open ecosystem and focusing on financial investment. At the same time, the company has gradually lost its internal product development and innovation capabilities, and has lost various core product battlefields in search, microblogging, e-commerce, news feed, short video and cloud computing.

Tencent is running a tech company in a way that is considered to be the most scientific by itself. In practice, it neglects that the core competence of a tech company should come from product innovation. Even in its main business segments, social network and digital content, Tencent seems incompetent and vulnerable when facing the challenges of Toutiao and Tik Tok (Bytedance) in the algorithm era.

In 2017, the most dramatic growth of usage is short video. If counted usage, the future Chinese TOP20 APP list will only be Tencent and Bytedance.

Weishi(a Short Video App by Tencent) is the most recent case. Tencent first launched the short video product, Weishi, in 2013, but the product was abandoned and the team was dismissed in March 2015. Tencent finally decided to shut it down in March 2017, when the daily active users of Tik Tok was less than one million. Tencent certainly didn’t expect an explosive growth in the short video space last year, even though SNG (Social Network Group) launched a Xiaokaxiu’s(a lip sync short video app) copycat, Shanka, when Xiaokaxiu grew dramatically in 2015.

What Tencent didn’t expect was that new products that involve “recommendations by algorithm + short video + open social graph”, such as Tik Tok and Kwai, penetrated into its home base, social network. They started a new way for users to manage “acquaintances IM+ enclosed social graph,” an area which Tencent had dominated for more than ten years. Besides QQ’s daily active users dropping by 100 million users every year, the average time an user spent on WeChat Moment has fallen sharply since December last year.

This shows that Tencent is no longer the best player in the market for capturing user traffic and user time-spent.

The question Tencent President Martin Lau had asked the most at the beginning of the year was, “How can Tencent not do well in short video sector?” In fact, when Tencent realized the rise of Tik Tok, they have already missed the best time, and then when Martin Lau realized the threat and decided to fight back — determining the team to lead short video, how to do it, from Shanka to DOV, and then Weishi, which was revived and switched from OMG (Online Media Group) to SNG (Social Network Group), and then deciding to subsidize 3 billion RMB to spend on user acquisition. It took another three or four months and Tik Tok had already gained over 100 millions of daily active users. The user’s mind was occupied. However, Tencent created a copycat of Tik Tok and decided to compete with it by using the same strategy as Tik Tok.

From leaving the sector prematurely to entering the market lagging behind, Tencent has shown many problems in its strategy and product and organization mobilization. In the year after the battles on news feed and short video apps, Bytedance (Toutiao) has surpassed Alibaba and Baidu to become the company with the second largest Daily Active Users in China after Tencent.

In the past, people used to make fun of Tencent’s OMG (Online Media Group), which didn’t have any product or technology development capabilities or any strategic directions. In fact, if you look closely, the performance of SNG in recent years is no better than that of OMG. Even worse, Tencent has lost its ability to receive and respond to feedback timely.

There are still opportunities in the market, but opportunities do not necessarily belong to Tencent anymore.

Let’s bring the time back to the Senior Management Meeting in early 2011, which decided Tencent’s path forward. In fact, Martin Lau himself should know why Tencent can’t do well in short video now.

On March 23, 2011, Baidu topped the list of Chinese Internet companies with a closing market value of $46 billion, exceeding Tencent’s $44.5 billion. This is the first time that Tencent has been overtaken after setting a record for maintaining the NO.1 position for 5 years.

Tencent, the former No.1, was introspecting.

At that time, the 360 vs QQ war just ended. Tencent won the battle, but lost its public image. It was sort of being political correct to blame Tencent at that time. During this period of poor image and reputation, it seemed that whatever Tencent did was wrong. Quoting from Tencent Biography, “Pony Ma was exhausted, and even began to doubt his “product beliefs”.

This was the Tencent that did not yet benefit from the explosive growth of WeChat, which was its ticket to the mobile era. 2010-2011 was the start-up period of new social platforms in the era of web2.0. The rise of Sina Weibo beat Tencent Weibo, and Renren went public in New York as the Chinese Facebook. Goldman Sachs bluntly pointed out that Tencent’s management had habitually held a conservative attitude, resulting in its core business facing threats from players such as Sina and Renren.

Wounded Tencent entered into a six-month preparatory period for strategic transformation. Tencent held ten expert seminars to diagnose the core issues of Tencent and prepared to transition from “shanzhai”(copycat) to opening up.

At a senior management meeting in the beginning of 2011, Pony Ma asked each of 16 senior executives in attendance to write down what they thought Tencent’s core competence was, and he got 21 answers altogether. Finally, management set on two company core competencies: capital and user traffic.

The dinner with JD.com

“Capital” is exactly what Martin Lau advocates for. He believes that “through the formation of capital alliances, we can not only achieve the goal of opening up to create an ecosystem, but also allow capital realization on Tencent’s huge user base” (e.g. enabling a built-in e-commerce platform in the Wechat’s Discovery page through a partnership with JD, and including Yilong, Dianping, 58, Meituan in the Wechat Pay page). Opening up is to let the users out and turn that into investment. Opening up the user base and capital — we no longer do it by ourselves. Tencent no longer excessively pursues an enclosed or internal growth mode”, capital operation will be participatory, only for symbiosis, not for ownership.”

Then, Tencent began to market that it had “given half of its life to its partners”. Pony Ma said last month that Tencent still needs transformation. In the past, Tencent business departments often crossed borders to win business with partners. This is not feasible. Internal norms should be sorted out, and the scope of what they can do should be set to very specifically. “The most important thing is to have a good position and set the boundary of what can be done and cannot be done. Let others do what they can. Tencent should never rob.”

James, Tencent’s current Chief Strategic Officer, was also introduced after the senior management meeting in 2011. Like Martin Lau , he was from Goldman Sachs, who pointed out Tencent’s conservative management at that time. James, who did not speak Chinese at that time, joined Tencent as CSO (Chief Strategic Officer, SVP level) in May 2011 to review all strategic reports and participate in decision-making. This was also the position where Pony Ma initially pitched to Martin Lau when inviting him to join Tencent.

Under the current division of responsibilities within Tencent’s senior management team, Pony Ma mainly focus on government relations and public relations and the team of Martin and James manages the company’s day-to-day. Martin Lau is in charge of the company’s daily operations, while James is in charge of Tencent’s strategic planning, strategy implementation and investor relations.

Martin and James, the two former Goldman Sachs bankers, prompted Tencent to launch a crazy buying strategy. Their notable investments included Sogou, Dianping, Jingdong, and 58.

Seven years have passed. Tencent’s market value has risen tenfold, overtaking Facebook’s by reaching $500 billion in early 2018. Baidu, which topped the the list in March 2011, had a market capitalization of less than $100 billion by that time.

Martin and James led the “Great Leap Forward” model of investment, which was to make subtraction continuously, “the business that is repetitive, unprofitable, has poor prospects, or does not play into Tencent’s strengths should be cut, and/or given to the partners that took Tencent’s investment and were specialized in certain vertical to operate.”

Since 2011, Tencent’s market value has risen 10 times through this capital plus user traffic strategy.

Hidden behind the ten-fold growth in market value is the investment banking mindset that pays too much attention on short-term ROI.

For example, Tencent intended to invest in Youku Tudou in the 2015, in a structure that would be the same as the 2013 Sogou deal and 2014 Jingdong deal. It planned to spin off its own product in the business vertical, Tencent Videos, and let the strategic partner operate it. Sun Zhonghuai, the head of Tencent Videos, flew to Hong Kong to stop the transaction and made a commitment that he could make Tencent Videos a market leader by himself. “Tencent has abandoned search, e-commerce and other businesses one after another, and now it’s planning to abandon streaming…There is no way a bunch of people can just count how much money they could invest every day.” In retrospect, the decision to not give up the product is absolutely correct. Tencent Videos is now a crucial channel for Tencent’s content strategy.

Looking at the company’s past development, Martin and James, the two executives who came directly from Goldman Sachs, should be criticized. As Chief Strategic Officer (CSO), James’s role is to steer the company in the most promising direction based on the actual situation of the business, helping Tencent identify where it should be headed and open up new possibilities. Despite making a lot of money from overseas investments, the team’s business capabilities did not grow at the same time as the market value soared. Not only has Tencent’s core product globalization been a mess these years, its existing businesses have not delivered much growth, let alone seizing the opportunity to tap into the under-penetrated internet market in the less developed parts of China. Tencent has been constantly losing ground in the various new core product battlefields and is only barely keeping up through investments in opportunities such as Kwai and Pinduoduo.

Last year, James also evaluated opportunities in the Indian board game and card gambling space, as well as Myanmar’s Internet market and focused his attention on a live streaming app which had less than 5,000 download per week. However, as a non-Chinese, he was not familiar with the tremendous changes taking place in China’s undeveloped regions. In other words, before Toutiao, Tik Tok and Kwai acquired a large number of users, Tencent probably didn’t think that their growth could come from the domestic market in China.

Tencent’s approach over the years tended to be expanding its existing businesses rather than focusing on deepening its reach in Chinese market through innovative products.

Tencent pays more attention to the data and competition of its current business, and how it can compete to maintain market share, but for the longer term and more pioneering activities, Tencent clearly has not invested enough. It can even be said that Tencent does not have Columbus and they are very slow on how to discover a new continent.

What is more disturbing to employees is that Tencent has shifted to “buying the winners” and become impatient with the development of internal projects. They have begun to use ROI mindset to measure the input-output ratio of new product developments: once they find that the ROI reaches the lower limit, they will shut down the product.

Influenced by a utilitarian mindset, Tencent has no feelings towards new projects, and projects and users can both easily become cannon fodder.

For example, Tencent Weibo, a strategic product built with resources pulled from the entire company, still has 81 million Daily Active Users in 2013 Q1. But because of the rise of Wechat, and Tencent Weibo having no hope of catching up with Sina Weibo, the project was abandoned in the first half of 2014. Tencent Weibo’s highest count of daily active users was 87 million, but for Tencent, it was still a project that can be shut down without any announcement.

At that time, Sina Weibo was struggling on performance and public relations. Allen Zhang made it clear that he did not value the product nature of Weibo and that the Moment of Wechat did beat Weibo based on the data. In addition, Pony Ma made a statement at the end of 2011 that decided the products’ fate, “Because of Wechat, the war on Weibo is over.”

Another aspect of Tencent’s decision-making is that Tencent Weibo could not compete with Sina Weibo on obtaining influencer resources, so that most of the users are from undeveloped area who have no influence on the mainstream, and most of them consume “junk food news”. However, to take another look now, the mobile Internet era turn into its second half, and this group of users became the dominating power.

Interestingly, it was the same person who was put in charge of Weishi after Tencent Weibo was shut down. And Weishi was called off shortly after its launch, again.

Chen Lin, head of products at the Toutiao, commented that shutting down Tencent Weibo and Weishi were two of the biggest mistakes made by Tencent.

In the past, in the era of traffic, the acquaintance-based social network brought a steady stream of traffic, and cheap traffic put Tencent as the top of the food chain.

Tencent’s traffic comes from two ends of a spectrum: QQ and Wechat, the acquaintance-based social networks, and web portal, online games, streaming and internet fiction, which do not rely on social connections at all. In the areas that lie between these two ends, such as Weibo, interest blogs and short videos, Tencent’s products have all failed miserably.

Tencent strongly believes in traffic (if not superstitiously). But traffic is a cold word, which is not equivalent to users, but just a bunch of numbers. The act of viewing users as traffic itself is an offense to users. The backend product statistics shows that there is one more user, but he is not a real person, which affect your in-depth exploration of the needs of real users and limit your ability to develop in-depth or moderate mode of operation for the product.

Traditional online gaming companies usually only have one chance. Making a good game requires considerations and judgements of the overall industry trend, launch timing, game genre, operation strategy and many other factors, in addition to constant pivoting in order to attract and retain users, even if they only have few users. Tencent, on the other hand, has a huge user base and strong pipeline of gaming content. They just need to pick among the projects and choose the one with the highest probability of success.

For example, in Tencent: Win the market, but the project suffers, Duichang said it is good business logic, but not a creator logic.

“Every project is a chess piece for Tencent, and the project targeting a niche market is cannon fodder, which is often sacrificed.”

until Tencent’s core business instant messaging suffered a cross-market attack from the short video apps, and let alone the fact that traffic no longer works the same (especially unrelated traffic).

For mobile gaming, players are getting more mature and consuming content at a faster rate, which causes traffic conversion to become increasingly difficult. At first, users have limited games to play, so they would simply play whatever Tencent pushes to them, such as popular leisure games from Tencent Tiantian Studio, which could easily sweep the market by using Wechat and Tencent App Store. Later, when users become pickier, Tencent would launch better games, such as the Arena of Valor, Flying Car and Dazzling Dance, leveraging the desktop games and their popularity; and now, because users have experienced different games across the board and have more diverse aesthetics and personalized needs, Tencent could not keep up with the popularity of featured games such as “Love and Producer” and “The Traveling Frog,” which are targeting specific audiences.

After exercising all of its inherent advantages, Tencent does not necessarily hold absolute monopoly in the market.

For products that require continuous retention, the change in how traffic works has a greater impact. For things that require quick iterations and don’t require long-term technological accumulation, such as games, APP, or a Wechat Gadget, Tencent’s traffic injection strategy can be successful, such as the introductions of its App Store, Mobile Phone Manager, Tencent Browsers and various games in previous years. As for things that need continuous reiterations for optimization, Tencent usually tend to fail on the bigger picture thinking and have multiple business lines often separately reinventing the wheels, such as search, e-commerce, news feed and cloud.

JD.com’s CEO, Richard Liu recently commented on the details of Tencent’s investment in JD.com in 2014: “As soon as I went to the United States, Martin held an internal conference and said that Richard had left for school in the United States. This is a prime opportunity that Tencent’s e-commerce product should seize to overtake JD.com. Then Martin and Pony mobilize all the resources at Tencent, including QQ and others, to inject traffic to the e-commerce platform, and then follow JD.com’s footsteps and invest in logistics like crazy. However, a few months later, the gap between JD and Tencent’s e-commerce platform has not gotten any narrower, but wider. As a result, Pony and Martin said that this battle is not worth fighting for. Since the competitor could still beat us when its leader is away with only his team responding to the fight, there is no point in competing. Since we can’t fight, we should just give up and hand it over.”

Joseph Tsaii of Alibaba commented on Tencent this year: Apart from its low customer acquisition cost, there’s nothing else to fear for.

In order to “prevent or suppress aggressive competitors from closing in”, Tencent and Alibaba have started an arms race in tech investments since 2013. The two companies fiercely competed in numerous areas from e-commerce, mobile payment, taxi, food delivery, bike sharing, cloud, to new retail and others.

As for why Tencent failed to continue to gain market share in China through developing innovative products, apart from the open investment strategy of “doing something, but also not doing something”, I think another reason is Tencent’s cold war mindset. Tencent may think that the battles between Tencent and Alibaba in the Chinese market have all been fought, and each company’s bets and focused areas have been determined. Other promising players in the market are simply fighting for the interest of Tencent or Alibaba – the duopoly situation is unlikely to change.

A few years ago, someone had asked Pony Ma: “Of the many companies that Tencent has invested in, which one do you care the most about?” Pony’s answer is JD.com, as he’s especially interested in containing the growth of Alibaba. It is said that he now meets with Huang Zheng who is the CEO of Pinduoduo once a month for to check on the e-commerce company’s progress.

For example, Li Zhaohui, a Partner from Tencent’s Investment Management team explained why Mobike and ofo could not be merged: “At the end of 2017, when Tencent and DiDi had participated in the merger negotiations, Alibaba first purchased the shares of ofo from Zhu Xiaohu and obtained veto rights, and then issued a loan to ofo. Since then, the door of merger of Mobike and ofo has been closed.

In the process of investing in companies to compete with Alibaba, Tencent strategic investment team’s desire for pursuing financial returns has exceeded strategic importance. Now Tencent’s strategic investment team’s positioning is “the strategic investor that looks most like a financial investor”. For example, Tencent’s investment scope is much wider than Alibaba’s, and there are many investments that are purely financial, but Alibaba still insists on investing in companies that can have some synergy with its existing businesses.

By accumulating capital from cash earned from the main business, utilizing stock and bond financing as leverage, focusing on investing in industry-leading start-up companies, and creating value-add by sharing user channels, Tencent has basically got this model to work, and it now has the largest investment portfolio by both the number of investees and portfolio size of all internet companies in China. In November last year, Li Zhaohui disclosed that Tencent had invested more than 100 billion RMB and had invested in more than 50 unicorns. Martin Lau also disclosed at the Tencent Annual Investment Meeting in early 2018 that the value added by these enterprises has exceeded the market value of Tencent itself.

I don’t know if Tencent remembers that the previous, well-known internet company whose investment value exceeded the company value was Yahoo, which invested in Alibaba. If Yahoo deducts the investment income received from Alibaba, the whole company’s own business operations is treated as a negative asset by the market,

For a long time, Tencent was using investments as defense. Previously it was hoping to contain Alibaba, but now it may need to add Bytedace as another competitor. It has invested in Qutoutiao, which caters to an underpenetrated market in the news feed space, and has been in contact with consumer content products and community-based social networking products on the market. Within the company, Weishi has been restarted in the hope of holding back Tik Tok just like Huoshan holding back Kwai.

Last year, when Fan Bao talked to Yiming Zhang, the founder and CEO of Bytedance, and asked why Bytedance could come out to become a leader in today’s TMT market in China, Yiming Zhang said, “At the beginning, companies were competing in some old battlefields or transitional sectors, not looking forward. Now, app stores, PCs, traditional search engine businesses are all transitional. They are still too obsessed with the old battlefields or old things. It’s the same now. If they come back to compete with Toutiao, it may affect their attention to new things.

A few years back, the three big tech giants in China also perceived Tencent as second-tier. When Baidu was the No.1 valued company in China seven years ago, it certainly did not think that it would fall behind one day. Five years ago, Pony Ma, at WE conference, said, “When the giant fell down, his body was still warm.”

The struggle for hegemony between the US and the Soviet Union is meant to end, and the world will develop to be multi-polar.

Tencent’s Organization Chart as of 2017

For the news feed business, there are Tencent News, Tencent video, Tiantian news under OMG (Online Media Group), Top Stories under WXG (Wechat Business Group), QQ Top Stories and QQ space under SNG (Social Network Group), QQ web browser and App Master under MIG (Mobile Internet Group). With nine different teams working in the same market together, Tencent still can’t beat Toutiao.

Tiantian News is the first feed product that Tencent focuses on, but its DAU is less than 1/3 of Toutiao’s DAU. Tencent News APP has a higher DAU than Toutiao, but its advertising revenue was only 2.4 billion RMB last year, which is roughly two months of Tik Tok’s current revenue.

Tencent is absolutely crushing Toutiao on the resource front, from delivering traffic, invested capital to the number of top talent are. Furthermore, Tencent’s Wechat Subscription Platform is China’s No.1 media creation platform; its CDG (Corporate Development Group)’s advertising business is also powering ahead, but its feed product has kept failing. What’s the wrong here?

The reason may be that Tencent’s internal data is housed in different groups instead of being shared across the company. Due to the conflicts and division among the various business groups, Tencent fails to form a unified and powerful strategy and execution. For example, if MIG’s QQ Browser tries to copy Toutiao and create a content ecosystem and feed product, first the team needs to reach out to WXG (Wechat Group) to share its data, and then ask OMG, SNG and IEG whether they can share their groups’ data with MIG. If these teams deny the data sharing request, then the MIG product team can only base its product development (specifically feed recommendation) on MIG’s own data. When lots resources were poured into Tiantian News for its growth, it failed to make good use of the Wechat Subscription Platform.

Why did KanDian under SNG do better last year? That’s because Tencent as whole had experienced attacks from Toutiao and leaders of the various business groups started to look into the issue: they opened an entry point to KanDian in the QQ chat windows and injected SNG’s own QQ music MV resources into the app; the best content resource from Tencent News under OMG were also fully shared. Dowson Tong, President of SNG, also asked Allen Zhang of WXG to share the content of WXG’s Wechat Subscription Platform with KanDian, together with the animation resources from IEG. If there were no such strong push from the top, it was likely impossible for the execution teams to make everything happen.

Tencent’s various product departments and business groups have very different working styles and experiences (e.g. the battles they’ve fought). With the company also encouraging internal competition, each group almost always develops their own products. SNG and OMG are working completely separate from each other. Normally, they will not share any resources with each other and there is no such thing as helping another department without any return. Then the communication cost is also extremely high, and it takes weeks to make some decisions for micro problems. The internal check-and-balance system makes it impossible for the teams to take over the markets from external competitors, which raises another problem: people are focused on grabbing a larger share of the cake within the company instead of thinking about how to make the cake bigger.

There’s little collaboration or unity among business group and product teams at Tencent – there must be clear mutual benefits before they will agree to cooperate, and as a user, you can hardly find out from the collaboration that both products belong to the same company. For example, Tencent’s Millions of Heroes (a live Trivia game show) didn’t launch even after its competitors were already shut down by the government. Another example would be that many people may not know the relationship among Wechat Subscription Account, QQ Subscription Platform and Penguin Media Platform since they might already have a Wechat Subscription Account, but they will be asked to re-register on a new platform from Tencent and then publish the content again.

The other possible answer may be that hardcore technology is less used in its business, which mainly refers to AI technology. Top talent needs the appropriate business environment to practice and improve themselves too. For example, Tencent AI Lab’s AI Go product “Jue Yi” has first lost to “Dancer” and the “Phoenix Go” – the former being a personal amateur work of Yang Zhenyuan, Bytedance’s Vice President of Technology who has transitioned to management, and the latter coming from a few ex-Tencent engineers from Tencent Translation.

So why does Tencent have less “hardcore” technologies? On the one hand, there is limited collaboration between the researchers and those who are applying the technologies to the products, and on the other hand, this is largely due to Tencent’s business lines being completely independent of each other. With the “walls” between business groups and their respective data, Tencent has re-invented the wheels repeatedly. Without a good picture of the overall technical architecture required to enhance synergies, Tencent cannot dig deeper into technologies.

The frequent reinvention of wheels, together with the large number of work required for follow-up optimization and maintenance, means that Tencent has to incur exceptionally high amount of cost, as it is positively correlated with the number of wheels it builds. However, more importantly, when there are specific needs, but the wheels that should be built are not built, or the resources are being spread out instead of poured into the critical one, which results in the poor construction of that wheel, the company will lose enormous time and incur extremely high opportunity costs.

PUBG is Top1 App in 100+ countries

The failures of Wechat’s and Arena of Valor’s internationalization are the best examples of how Tencent has repeatedly missed the best time windows and wasted opportunities.

On June 1, 2012, Allen Zhang posted his last micro-blog on Tencent Weibo: “Even lots of Saudi Arabians are using Wechat. Wechat is already the most downloaded SNS app in many regions.”

At that time, Pony Ma also believed that Wechat was the product that could really make Tencent an international company and thus he approved a marketing budget of 2 billion RMB for the product.

But in the end, Wechat not only lost the war with WhatsApp in the global market, but also lost to Line in the Southeast Asian market. Wechat didn’t succeed in any overseas market. In fact, 2012-13 marked the beginning of globalization efforts for all of these players, and WhatsApp and Line were not comparable with Tencent at all in terms of money and resources.

The head of globalization at CDG later accused WXG of not cooperating with them, and they could not get control of the product. Of course, the actual reason is that overseas market was not the top priority in the earlier stage, which led to less effective strategies. Wechat was first developed without considering the possibility of internationalization,and in order for the product to be accommodate the needs of the global markets, numerous revisions are required. Moreover, the internationalization of Wechat was led by CDG, instead of its own business group, WXG. The slow and ineffective communication between these two groups on the product roadmap, technology, infrastructure and design, burdened Wechat’s growth in international markets.

They made a similar mistake when launching Arena of Valor in the global markets. Because there were no prior preparation or strategic thinking about the launch, each region essentially had to redo a new version for the specific local market — updates launched in different markets were therefore not synchronized and each update needed to be repeated numerous times for each new version.

Another problem with Tencent’s internationalization is that it relies too much on resources and ignores the timing as the most important factor. For Tencent, a global product launch does not mean that, the engineer team develops the app, then translate it to the local language and submit it to the App Store for release. Instead, they finds a local operator first, and communicate with the local Tencent offices, secure business partnership resources before the launch, and then tackle individual, specific problems one by one..

But this strategy of “business first, product second” often makes the process way too drawn out, causing the company to miss the best time window for launch. For example, Arena of Valor was first introduced to the Southeast Asian market by Elex, a copycat. Although their product quality is low, they do it quickly enough so that wherever they are, people think they are the real Arena of Valor, making Tencent unable to enter the market. At the same time, once you are behind in the overseas market, it will be extremely difficult to catch up again. The reason why Tencent’s products can catch up in China is that they rely on Tencent’s huge user base and the ability to inject large traffic to the products. Everyone in Southeast Asia has become accustomed to playing the game from Elex, and the user relationship has been established. Six months later, Tencent enters the market, claiming its version being the real Arena of Valor. Who will still care?!

The PUBG did not follow this old path when it was still in development. It was developed for the global market. It did a good job of having localized versions and content, so that players from all of the world can download. The effect was obvious with the number of downloads and players – it ranked No.1 in more than 100 countries and regions without any local promotion or high marketing budget. They just launch fast and seized the first mover opportunity.

Time is the most important factor in a fast growing market.

Big companies often consider resources as priority and thus become inflexible.

Product is the embodiment of the product manager’s experience and DNA. It is a combination of empathy, perception and imagination.

Product managers must have perseverance and firm values in order to grind out good products.

Many people say they are suffering while making Power Point slides. Why do they need to make Power Point slides? I suddenly realize, it is for review meeting. We have had a few years without review meetings, and people don’t make Power Point slides anymore. If you want to stop making Power Point slides, you should abolish the review meetings. — Allen Zhang

Tencent has recruited a lot of smart people. When smart people are together, they just make Power Point slides to fight with each other. They don’t want to do the lower-end tasks, but fighting is meaningless. The smart people at Tencent thrive in this type of system, and Allen Zhang is probably the fool among these smart people at Tencent.

According to Reuters, Pony Ma, Martin Lau, James, Neil Shen (Founder and Partner of Sequoia China), bought the Four Season Hotel in Tahiti

If all of the executives of an internet company were born in the 1960s and 1970s, and their hobbies are golf, wine, buying resorts and politics, why do you think the young people and the mass market would have anything to do with you? The feeling of aging is not that I don’t want to learn new things, but that I haven’t finished digesting old things.

If the bosses don’t like short videos at all and have never watched or shared them, how can they develop a viral short video product? When a street artist sees Picasso’s paintings, why does he think he can draw them? How can you draw well when you don’t like painting?

You create the competition within the company to survive, not to do things.

I always felt that horse racing was not a practical mechanism since nine and a half of the ten projects would fail. Horse racing is actually a waste of resources – spending efforts across products shows that you have not figured out the key points at all, and do not know what the next big thing is. “It is an attempt to deal with the uncertainty of the future in a scientific manner with huge investment of resources.”

Without thinking clearly about what to do but hoping to provide insurance for the company’s success, this internal competition system with duplicating efforts is a way to pursue short-term results, not a way to break through the critical points of one promising project with continuous investments. It is almost like buying lottery tickets – I have a lot of money, and I can buy all the tickets, which will guarantee a win. If anything, I can even buy out the entire lottery center.

Failure can make people stronger.

This “horse racing” mechanism means that there will be a lot of failures.

But at the same time, Tencent has a “winner takes all” culture.

It is not that the leadership lacks innovation, it is the team leaders who are afraid of failures as they have limited room to fail.

Once something fails, the junior staff will think that they’ve done what they need to, and it will just be working under another manager. They will still receive the same paycheck, maybe only with a slight difference in year-end bonuses given the teams’ different performances. But the team leader must stand up and take the responsibility for the failure, and he/she will likely not have a second chance.

Once a team leader fails, the senior management team will almost never use him/her again. If the senior management team doesn’t give the team leader a second chance, the team leader will only have two options, one is to transfer to a non-core department with no bonus and career advancement, the other is to leave the company and start their own company.

So for the crucial battlefield of News Feed, Tencent appointed Ren Yuxin and Lin Songtao, two veterans trusted by the management team as the best leaders for this battle. Ren was a “company firefighter” who joined Tencent in 2000 – he won various battles and built both IEG and MIG; and Lin joined Tencent as QQ’s first product manager after graduation and successfully built QQ space and QQ App Store.

For this new market of News Feed, Tencent still assigned the elders who have experienced the rise of QQ, the IPO of Tencent, web2.0, PC to mobile evolution and mobile app distribution.

Similar to Dowson Tong’s leadership of KanDian, Tencent expressed its expectations for Ren Yuxin as president of OMG in its corporate email last year as follows:

The company expects Mark to further integrate company-wide resources, drive multi-engines of information and related content distribution platforms to promote each other, accelerate product technology upgrading, and increase strategic linkage in content and entertainment ecosystems between online media (OMG) and interactive entertainment groups (IEG).

Others can play, and they may have won before, but once they fail, they may step down, and they will not take on important responsibilities anymore. The so-called important responsibilities are given to those leaders who have always won the battles. Pony Ma and Martin Lau’s first reaction must be that I sent my best people to do it. Ren Yuxin also has the same consideration about appointing Lin Songtao and Yao Xing.

Intolerance of failure leads to no one willing to take the initiative to innovate – with few battles to fight and fewer victories to claim, the younger blood in the company lacks training and opportunity to make themselves seen. So Tencent has been relying on the elderly for many years, and the talent reserve system has never been built up. When it comes to important battles, it is customary to choose the most-tenured people at Tencent to lead, even though Jiang Fan, who was born in 1985, was already the President of Taobao. And Tony Zhang who was the co-founder, former CTO and second-largest individual shareholder of Tencent, also said that in the traditional industries, seniors have advantages with their experiences, but in the Internet industry, it needs leaders to be very energetic. Without 80+ hours of hard working, people would be out of touch and disconnected from reality and do not know what young people are thinking. Almost a year after Ren Yuxin took over OMG, he has now lost confidence in Tiantian News.

Tencent has been doing this all the time. It was once successful. It was how it became No.1.

People are slaves to experience

Your experience can help you dodge some bullets, but it will also make you miss out on some opportunities.

Tencent has gone a long way: after 3Q war, Tencent no longer wants to be seen as a copycat; the open investment strategy with traffic and capital makes higher ROI than ROI on its own operations; setting up firewalls among various departments to fight corruption and marketize internal resources; Wechat and Area of Valor both came out of the internal horse-racing system; in the PC era, the terminal control that QQ had allowed Tencent to build strong cross-sell clusters; Tencent lost to its competitors in search, e-commerce and micro-blog. Tencent learned it lessons through these battles, and became more self-aware.

Pony Ma is a minimalist and intuitionist. As early as 2004, he proposed that Internet companies have three driving forces, namely technology, application, user & service, and Tencent would focus on the cultivation of the third driver. “A lot of internet companies in China are application-driven rather than technology-driven,” he said in Tencent Biography.

During Tencent’s past 20 years, several major product innovations that determined its fate, such as QQ Show, QQ Space, Wechat and Arena of Valor, all belong to the “light industry” that focuses on product user interface and user experience innovation to pursue short-term results. They rely on their accurate grasp of Chinese users’ consumption preference in the virtual world, rather than investing in “heavy industry” such as search engine and e-commerce that yields long-term returns. Therefore, Tencent has been investing in building ecosystems and research and development on the application level for all these years, thus failing to transform itself into a technology-driven company in time.

The main audience for social and content products are young people.

But young people are fickle.

The head of Facebook’s User Growth team left Facebook and started a fund to buy Amazon’s stock rather than Facebook’s stock because that he believes that Amazon’s growth is driven by scale whereas Facebook focuses on capturing user behaviors, but young users are constantly generating new behaviors, and therefore FB will never be safe.

As another example, Pony Ma and Allen Zhang are both fans of this “naive mindset”. From their point of view, the world may simply be divided into two extremes, the naive masses and the elites like themselves. “To make a product, we need to pay attention to the needs and focus of the high-end users and those opinion leaders. Previously, our idea was to focus on the majorities and ignore the minorities, to meet the needs of most ‘naive’ users. But now it seems that the feedback from high-end users can really get us the word of mouth effect.”

But during the recent years, new opportunities that require acute understanding of users, such as Kwai, Bytedance and Pinduoduo, all come from the undeveloped market. Their users are neither in the traditional sense of “naive”, nor do they care whether the people from the metropolises can understand. This misunderstanding of users and word-of-mouth may also be the reason why Tencent has failed to seize any recent opportunities.

Tencent’s vision is to be the most respected internet company.

It is great but vague because no one has explained how this vision should be achieved.

There is no problem of asking people to complete their KPIs, to improve company stock performance, or to increase cash flow. But how to be a respected company is a question that nobody has ever thought about. Tencent has simply raised the point, but has not done anything specific to realize this goal. If Tencent really wants to be the most respected internet company, it should reflect itself from the fundamentals, from management system, promotion mechanism, test and pivot, organizational wall and data wall, to the aging of its senior executives and culture.

If the company’s vision is particularly vague with no clear path forward, then I lean towards the conclusion that this company (in this case, Tencent) does not have a vision. Decision-making without a vision can easily become opportunistic. The company would only have the inertia to continue expanding, not to be great again.

Tencent has been reacting over the past few years. It was a reactive move to try to sell QQ, and same with the 3Q war, as well as not being a copycat and adopting an open-up investment strategy. Tencent has been pushed by the external forces. It was a reactive move to do horse racing within the company, and so is relaunching the Weishi project today. It’s been eight years since the army was disbanded and war horses were freed – it’s too hard to win any more battles because your muscular memory is lost.

Pony Ma was also once a teenager who was into astronomy, but he has a very different understanding of companies from Jeff Bezos. He is not Jobs or Bezos. He has no strong expectation of what the world should look like. For instance, he has no ideas about which direction this world should go, what he needs to create for the world, what he should do for the world, what he should fight against, or what the world will become given his efforts.

When there is no clear direction, the slowdown of gaming revenue growth induces will induce anxiety, Wechat will need to increase its advertising revenue, and more money needs to be made in order to invest in more projects to manage the company’s stock market value.

A need should be met promptly, not like Tencent Doc, which only became online after eight long years.

Tencent has trapped itself in a very thin layer, where it is extremely concerned about protecting its public image and not be considered a copycat, so it doesn’t step into its partners’ fields to avoid battles and conflicts. It’s similar to Microsoft, which didn’t really allow employees to speak of competition in the company for a long time. But when you’re not hungry for opportunities or when you aren’t able to claim that you can do things better than others, your internal machine will get destroyed. It took Microsoft, once an extremely powerful company, 15 years to get back on track after getting hit by the anti-trust troubles. And they were only able to do so because their profitability levels were enough to support their survivals, and if they were not profitable enough, they would’ve gone bankrupt much early. A company can survive if it has strong profitability. Maybe there will be another Allen Zhang at Tencent in the future, who will be able to seize the next big opportunity.

While Pony Ma might be aware of a lot of the problems at the company, he will take the time to make gradual adjustments and changes. Even during the 3Q war, he first stated that Tencent needed to open up part of the company aggressively, but it actually took Tencent one or two years to actually execute and implement the plan. This is his personality, which will affect the attitude and character of the whole company, and which is then reflected in the way how products get improved gradually.

Tencent is a company like water which benefits all things and does not compete. It simply follows the flow – the advantage is that it can run smoothly, but the disadvantage would that it lacks personality. Such company has no beliefs, doesn’t know what it wants exactly but then thinks other things are too minor to be desired, and thus foregos lots of opportunities. It’s not like that even if it is a silly thing, I still do what I have to do and it’s all because Tencent and Pony Ma care too much about what the outside world thinks of them/him.

Today, the core task of managers is to ensure that the organization can keep up with the changes in the environment, so that the organization has the ability to manage uncertainty. However, most of the internet companies today still have organizational structure that are bureaucratic, which is common during the industrial era. Setting KPIs as assessment tools like for assembly line workers back in the days, the company has serious internal friction and inefficiency. Organizational evolution is the biggest challenge for big companies, like Tencent and Baidu.

Zhang Yiming once commented that Tencent had made a mistake in its company strategy. “If you are on a very promising, very long runway, you should fly at low altitude. It should utilize all of its previous profits to invest on a deeper level and on a larger scale so that they can achieve greater results. Zhang believes that it’s a recognition problem.

“Comparatively speaking, they (Tencent and Baidu) are more short-sighted. Why is the competition is so fierce now, because everyone is trying to achieve the ultimate and long-term optimization. And in order to the long-term optimization, it may need to sacrifice the short-term.”

Tony Zhang said at the beginning of this year that one of Tencent’s two major challenges is its internal organizational evolution. “The trend of new technology, the rapid development of big data, AI and cloud will give rise to the upgrading of every industry. For Tencent, there should be a great opportunity for innovation. However, the internal organizational structure of Tencent has not yet adapted to this era. The original BG-based organizational structure will encounter many issues and fall into pitfalls.”

Pony Ma also said that Tencent’s current organizational structure presents a big challenge. “Tencent’s current organizational structure is established to target at end consumers, and we need partners to force Tencent to upgrade its internal organizational structure, otherwise we will not be able to adapt to future development needs ourselves. Tencent needs to adapt to 2B and 2G business models, the situation where a partner comes to Tencent seeking collaboration and then dozens of apartments show up, arrange separate meetings and talk about different things.

After its IPO in 2005, Tencent first changed its organization structure to align with business units instead of functions, then the wave of mobile internet divided up the Wireless Business Unit to several units in a timely manner. However, the current rate of new businesses coming online is not something Tencent can handle with its existing organizational structure. Its organizational structure is desperately in need for a changeover.

We recommend a book for CEOs, “Enabler: Building an agile team for uncertainties”, which is written by the First Commander of the U.S. special forces during the Iraq War. After getting beaten on the front line, he realized that it was nearly impossible for a formalized army to win against the terrorists — the organizational structure needs to evolve to be agile enough to deal with its opponents.

“Enabler” predicted the death of the hero and the debut of the gardener, where a management style that focuses on planning and forecasting is no longer suitable to address today’s challenges. The core responsibilities of today’s managers are to create a development environment that can deal with change. If an organization wants to innovate and be creative, it needs to break barriers, build cross-department collaborations, and establish information sharing and cross-department trust building mechanisms, reducing the internal friction in a decentralized network structure.

At the beginning of 2017, when Melissa Ma returned to Baidu, she said, “People still remember that we were once the most valuable internet company in China by market capitalization. We need to reflect and reevaluate what has happened over the past four and half years.”

Tencent’s stock price has dropped from a high-point at HK$476/share at the beginning of the year to HK$382/share as of closing at the time of this article, overall a decrease of over 20%. Tencent lost over US$100bn (more than what Baidu is worth) over the three months.

I hope that Tencent does not need to wait for another four and half years to reflect.